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INTRODUCTION AND OVERVIEW 92 simpler definition of family resources or by linking eligibility less closely to the poverty thresholds because of possible budgetary constraintsâto better serve program objectives. Need Standards for AFDC In most government assistance programs, the benefit standardâthat is, the maximum amount of benefits provided to people with no other incomeâand the eligibility or need standard are the same. People who are eligible because their countable income falls below the benefit standard are entitled to receive benefits up to the amount of the standard.32 AFDC is unique in that federal legislation requires each state to establish a standard of need for families with no other means of support. In a separate process, each state determines the maximum benefit that it will actually pay to such families, which does not have to equal the state's need standard. As prescribed by federal statute, the need standard restricts eligibility for AFDC: currently, families must have gross income below 185 percent of the state need standard to be eligible to receive benefits. In addition, they must have net countable income (as defined by federal law) below 100 percent of either the state need standard or the state payment standard, whichever is lower. As of January 1994, 40 states had a maximum benefit that was below their need standard (in some states the maximum benefit was below both their need and payment standards; U.S. House of Representatives, 1994: Table 10-11; see also Solomon and Neisner, 1993: Table 1). Historically, there has been great variation among the states in how they derive their need standard, in how often and by what method they update it, in how benefits relate to the need standard, and in the level of the need standard. The differences in state AFDC need standards are much wider than can be explained by differences in the cost of living across states, even allowing for the problems with subnational cost-of-living indicators (see, e.g., Peterson and Rom, 1990). One could argue that the level of the need standard is irrelevant to families' welfare because states are not required to pay benefits at that levelâand three- quarters do not. It is also true that welfare policy is currently in a state of flux: the AFDC program as it has operated historically may change in significant ways, possibly rendering moot the question of the soundness or adequacy of the need standard for the current program. Nonetheless, until the program is changed, there is a requirement that the states develop a need standard, which is important for several reasons: it sets limits for eligibility; it is linked to benefits, directly in those states that pay 100 percent of need and 32 Strictly speaking, this statement applies to cash benefit programs (e.g., SSI, veterans' pensions). Near-cash programs (e.g., food stamps and assisted housing) have a benefit standard that falls below the eligibility standard because the benefit pertains to a single commodity.
INTRODUCTION AND OVERVIEW 93 indirectly in other states; and it offers a goal or target against which to assess the adequacy of benefits. The question is whether it makes sense for states to adopt the proposed poverty measure in place of their own need standard. A related recent development in standard setting practices is that 14 states have explicitly geared their need standard to the current poverty guidelines. In many of these states, the link is more theoretical than actual in that the need standard, either by law or regulation or because of failure to adjust for inflation, is a small fraction of the poverty guidelines. In other states, the definition of the poverty guidelines has been altered to exclude some types of consumption. Still, a growing number of states have found it convenient to link their AFDC need standard in some fashion to the poverty guidelines. We believe the proposed measure represents an improvement over the current measure for this purpose, and we encourage states to consider its use. The proposed budget concept correlates well with the objectives of the AFDC program to provide the means for low-income families to obtain basic necessities. The exclusion of medical care needs from the proposed budget concept is consistent with the separate provision of medical care to AFDC families through the Medicaid program. In many respects, the proposed definition of family resources is similar to the AFDC definition of countable income, such as the treatment of work-related expenses, including child care, as deductions from family resources rather than as part of the poverty budget. In addition, the proposed measure includes an improved equivalence scale and reflects area differences in housing costs. The 1988 Family Support Act requires states to review their need standard every 3 years and report to HHS. In the next review, states could consider the possible use of the proposed poverty measure as a need standard for AFDC. In their review, the states would need to look at the implications of the proposed measureâboth the thresholds and the definition of family resourcesâin relation to their current need standards (whether the current poverty guidelines or the states' own standards). They would also need to consider whether the proposed measure may need to be modified in one or more respects to be more suitable for program purposes. It may be that, for budgetary or other reasons, states will decide to set the need standard at different fractions of the poverty threshold. Nonetheless, having a link between state need standards and the proposed poverty measure would be a major step toward providing a common framework for determining AFDC eligibility and evaluating eligibility levels across states. RECOMMENDATION 8.1. The states should consider linking their need standard for the Aid to Families with Dependent Children program to the panel's proposed poverty measure and whether it may be necessary to modify this measure to better serve program objectives.